Sales taxes as we know them today did not exist in the United States until the Depression era, although specific sales taxes on various products were introduced on and off since the Civil War. Kentucky first enacted a statewide sales tax in 1930, and is generally credited as the first state with a modern sales tax (although the current Kentucky sales tax wasn't passed until 1960).
Following Kentucky's example, a full twenty-four states established sales taxes of their own during the 1930s, followed by another six states in the '40s, five on the '50s, and finally eleven in the '60s. The last state to introduce a sales tax was Vermont in 1969, and today only five states - Alaska, New Hampshire, Montana, Delaware, and Oregon - still do not have a statewide sales tax. Table 1 lists each state with the year it's sales tax was established.
The sales tax now serves as a key income stream for most states, second only to the state income tax, and currently provides an average of 33% of the states' gross revenue. Local sales taxes provide over 11% of local tax revenue (with the majority of the rest coming from property taxes). Combined state and local sales taxes generated over $200 billion dollars in tax revenue in 1999.
The sales tax is more important to some states then others, with states in the south and the west particularly relying on the sales tax as a large percentage of their income. While the New York sales tax accounts for only 20% of state income, several Western states rely on the sales tax for close to 60% of their revenue. The following chart shows sales tax as a percentage of state revenue in 2000.
Graphics credit William F. Fox, University of Tennessee Economics department
The sales tax generates a significant percentage of many states' income, and recent advances in technology such as online shopping have seriously threatened sales tax income to the point that many states have established new sales tax laws. While the sales tax has been relatively stable over the decades since it was first implemented, modernization and technological advance may bring about drastic changes in the way sales tax is assessed and collected in America.
|Table 1 - Date of adoption of sales tax|